The stock market may have rallied in January, but that doesn’t mean managers are making it a top investment choice.

On the first trading day of 2012, the Dow Jones Industry Average ended at 12,397.38 points, a long way down from the end of month close at 12,632.91. Some market participants have increasingly become positive about the direction of the equity markets. Yet, others are still feeling the effects of last year’s volatility.

“Risk assets made gains in recent months but, with the odds of recession high, we remain tactically cautious,” said Jeff Applegate, chief investment officer of Morgan Stanley Smith Barney (MSSB), Morgan Stanley’s wealth management arm with $50 billion under management.

The MSSB Global Investment Committee lowered exposure to risk assets such as stocks, commodities and real estate, and ramped up allocations to safe-haven investments, such as cash, bonds and managed futures—a strategy that seems to be everywhere in today’s markets.

With a year-to-date loss of 0.04%, following a year up by nearly 2% in 2011, managed futures have been favorable among institutions—especially endowments, who increased their exposure to managed futures by 30% in 2011, according to a joint Nacubo (National Association of College and University Business Officers)/Commonfund Institute study of endowments.

“We raised exposure to managed futures, an asset class that has historically performed well when equities falter,” Applegate continued. “This asset class has low historical correlations to other asset classes; and thereby provides a considerable degree of portfolio diversification.”

Meanwhile, many investors have long sought commodities and real estate to protect against rising inflation. MSSB is avoiding the very same asset classes because of their ties to the economic cycle.

Both remain “economically sensitive” in light of the current recessionary environment in the U.S. and should be kept to “limited exposure,” noted Applegate.